Research

The Downfall of Direct Payments

Wednesday, May 1, 2013

by Sara Sciammacco

The Downfall of Direct Payments

Starting in the 1930s, U.S. farm programs focused on reducing crop surpluses and sending checks to farmers when crop prices fell. That all changed in 1996. In a political parallel to today’s Tea Party-influenced environment, the Republican-controlled Congress decided that year that it was time to let the free market – not government – drive the farming economy. In renewing the farm bill that year, lawmakers voted to end the traditional farm subsidy system in favor of five years of “market transition” payments to farmers. But then a strange thing happened. The payments that were supposed to decline annually never actually went away. Farm programs turned into a cash crop for big agribusinesses, which co-opted federal policy and turned it into a perennial giveaway that disproportionately benefits large landowners and wealthy farm operations. And that remains the reality today.

The industrial agriculture lobby has been defending the controversial “direct payment” form of taxpayer-funded subsidies ever since they were first authorized. These fixed, automatic checks go out every year to the largest growers of commodity crops, such as corn and cotton, whether farmers need them or not and despite the fact that farm household income has eclipsed average U.S. household income. Farm income for the largest operations, in particular, has soared sky high.

As Environmental Working Group’s Craig Cox said to the New York Times, “How do you justify this kind of money going to a sector of the economy that’s booming while other folks in the country are suffering?”

The epitome of waste is spending taxpayer money when we don’t have to. Thanks to the current drive to slash the ballooning federal deficit, Congress is finally on the verge of eliminating direct payments. That would open the door for a farm policy that levels the playing field for all of agriculture and creates a fiscally responsible safety net that actually helps keep working farm and ranch operators on the land.

This timeline is a comprehensive look at how direct payments have hurt taxpayers, farmers and the environment over the past 15 years. It also highlights the critical importance of budget and spending transparency in federal policy, and farm policy in particular. Because data on who received direct payments, and how much they received, was publically available, EWG’s Farm Subsidy Database was able to document how direct payments became an expensive handout to large-scale agribusinesses, absentee landowners, and profitable mega-farms. One reason to be skeptical of current proposals to shift direct payments to “revenue insurance” schemes is that such a system would almost surely end farm subsidy transparency.

1992-1995: “Following the Money”

Modern industrial agriculture is a resource-intensive and environmentally damaging enterprise. For years, programs subsidizing large-scale commodity growers have been flush with federal cash, while proven conservation programs that help protect water, soil and wildlife habitat from the ravages of industrial agriculture have lacked adequate funding. With Congress beginning to work on the 1996 farm bill, EWG resolved to compete more effectively with the farm subsidy lobby if conservation programs were to receive their fair share.

EWG also thought the public ought to know what was happening on Capitol Hill. Its data team began filing Freedom of Information Act (FOIA) requests with the U.S. Department of Agriculture and finding out just who was cashing those farm subsidy checks. EWG built a searchable database from the tens of millions of federal records and opened its Washington, D.C. office to journalists and other news media professionals, who began reviewing the records and filing reports on the serious inequities in farm spending that the data showed.

1995-1996: The Republican House

In 1994, when the Republican Party took more than 50 seats to take control of the House of Representatives, farm income and crop prices were high. Sound familiar?

The GOP, led by House Speaker Newt Gingrich of Georgia, persuaded Congress that farmers would be far better off without farm subsidies – and the government restrictions on what crops they could grow that came with them. Moreover, like today, there was tremendous pressure to reduce the federal deficit, and cutting the subsidies looked like a good way to do that. As a result, in 1996 lawmakers passed the so-called “Freedom to Farm” bill, which was supposed to phase out all traditional subsidies and create “market transition” payments to ease into a subsidy-free farm system. Lawmakers promised taxpayers that the payments would decline each year and end completely after five years. But that never happened.

As EWG President Ken Cook pointed out at the time, the reality was that, “The 1996 farm bill would not phase out subsidy programs and at least $4 billion or more would be available for every year after it expired in 2002. In fact, it would make things worse by divorcing payments entirely from market conditions, actual farming activity, and economic need.” He was right.

1998-1999: Doubling Up Market Loss Payments

In a marked contrast to today’s farm economy – one that most informed observers agree will be robust for years to come – within two years of the signing of the 1996 farm bill the farm economy had deteriorated and farm income and crop prices fell sharply. Farm lobbyists stormed Capitol Hill and demanded that lawmakers boost what were supposed to be declining market transition payments. In 1999-2001, Congress obliged and sent $21.4 billion to farmers as “market loss payments,” which essentially doubled the market transition payments farmers had been receiving. Congress defended the generous spending as emergency relief. In reality, a significant portion of the aid went to a very small group of recipients who were already benefiting the most from taxpayer dollars.

2001: Farm Subsidy Database Goes Online

Having generated an enormous amount of interest through its in-house computer system, EWG decided to publish its Farm Subsidy Database online for the public to see. Within a month, it had been searched 5 million times. As the New York Times reported, the database “not only caught the attention of lawmakers, it also helped transform the farm bill into a question about equity and whether the country’s wealthiest farmers should be paid to grow commodity crops while many smaller family farms receive nothing and are going out of business.” It has been updated every year with new data and has logged 320 million searches to date.

In 2001, Rep. Ron Kind, a Wisconsin Democrat, introduced legislation to direct more farm bill dollars to conservation programs and rural development, putting the spotlight on the lavish direct payments documented in the Farm Subsidy Database. Kind and other lawmakers used the subsidy data to bolster their arguments as they argued their positions in floor debates and, in some cases, vented their outrage. His bill lost despite garnering 200 votes, but a strong coalition representing a wide range of interests – taxpayers, conservation and wildlife –began to form, and the calls for reform grew louder.

2002: Congress Authorizes Even More Subsidies

Buoyed by a budget surplus, lawmakers returned to Washington and decided to bring back all the traditional farm subsidies – and keep the market transition payments, too. They changed the name from “market transition” to “direct” payments, but the checks continued to go out year after year regardless of need. Taxpayers footed the bill even when farm prices and incomes were high, without regard to other subsidies beneficiaries were receiving or whether they were actively engaged in farming at all. Since 2002, direct payments have cost the federal government about $5 billion a year on average, for a total to date of $41.4 billion. They are figured into land value estimates, drive up land prices and rents and make it harder for small farmers to expand and new farmers to enter farming.

Meanwhile, the more traditional counter-cyclical payments, which were also authorized in 2002, compensate farmers for drops in market prices. These programs have created perverse incentives that often reduce profitability and drive up taxpayer cost. Over the last decade, the government has paid out $15 billion in counter-cyclical payments.

2003: Subsidies Are Not “Saving the Farm”

In 2003, the average American household made about $59,000 per year. Farm households made $10,000 more, but almost all of the extra income came from off-farm sources – jobs in other sectors of the economy. With farmer incomes above national averages, it seemed odd to many that the government continued to dole out direct payments, and that wasn’t all. That year, Congress began funneling billions of dollars in disaster aid to hundreds of thousands of farms on a regular basis. A farm-by-farm review counted $11.3 billion in disaster payments from 1995-2003 – on top of direct payments.

2005: Bush Administration Opens Door to Reform

The Bush administration took issue with the inequities in the system and took the lead on farm bill reform. In 2005, it released a budget proposal to limit subsidy payments to farmers to $250,000. It was a very big deal at the time because the administration opened the door to reform on the most contested issue in agriculture policy. But big agriculture lobbyists were far from giving up.

2006: The Washington Post’s Year-long Investigation

Washington Post reporters helped advanced the case for reform in a series called “Harvesting Cash,” which included more than a dozen stories and several interactive maps.

On the campaign trail for the Democratic nomination for President, Iowa’s then-Gov. Tom Vilsack called for farm subsidy cuts and told the Post, “I didn’t get much of a reaction from farmers because deep down most of them know the system needs to be changed.” The Post went on to report that, “Vilsack joined a host of interest groups from across the political spectrum that are pressing for changes in government assistance to agriculture.”

2007: The Kind-Flake Amendment

Taking advantage of the momentum for reform, Reps. Kind and Jeff Flake (R-Ariz.) introduced a bipartisan amendment in the House to end direct payments and overhaul other subsidies in order to invest more farm bill money in conservation and nutrition programs. Unfortunately, the Kind-Flake amendment failed and the House passed a new farm bill that maintained the status quo.

2008: Subsidy Lobby on the Defensive

In the run-up to the 2008 farm bill re-authorization, the subsidy lobby and farm organizations pressed relentlessly for billions of dollars in additional taxpayer support in the form of still more lavish direct payments. However, there was enough push back from lawmakers and reformers to block an increase.

National and local media circles began highlighting the calls for reform by publishing 477 pro-reform editorials that year. EWG’s interactive online map analysis noted, “Few issues have garnered as much editorial page criticism of Congress, which by and large has acceded to the subsidy lobby’s preferences for unlimited taxpayer support for the largest commercial farming operations in the country. This occurs while most farmers and ranchers receive no support at all. Congress’ unwillingness to take on these special interests has only increased the clamor for change in the nation’s newspapers.”

Despite the overwhelming support for change, Congress sent a farm bill to President Bush that didn’t make a dent in direct payments. Instead, it brought on board two new subsidy programs, including the Average Crop Revenue Election program that guaranteed farmers a set level of farm income. Bush responded by vetoing the entire bill. Due to a clerical mistake, Congress had to re-pass the bill and send it to the President again. He vetoed it again, but both vetoes were overridden. The subsidy-laden bill became law.

2010: The Snowball Effect and the Elections

For most of 2009 and 2010, the country was digging out of an economic recession, and cost-cutting ideas were at the top of the agenda. None other than Rep. Peterson, long a die-hard farm subsidy defender, acknowledged the intensifying criticisms in a statement: “One of the issues that needs to be looked at or addressed is, are these direct payments being capitalized into land values and rents? And is that making it more difficult for young farmers to get started?”

Not long after, the Iowa Farm Bureau announced it would support cutting off direct payments to farmers if the money went towards crop insurance instead. The Delta Farm Press wrote, “The Iowa Farm Bureau action, which is not binding on any other state Farm Bureau, may be the first by producers to call for an end to direct payments, which have become a favorite target of criticism by non-farm groups.”

An analysis titled “Democrats’ Bitter Harvest,” showed rural Democrats who voted for the 2008 farm bill and its lavish farm subsidies were not at all shielded from the Republican wave in the 2010 election. At least 15 Democratic members of the House Agriculture Committee lost their seats, while Democrats who had voted against the bill were largely unscathed.

2011: The Super Committee

With the national debt on the rise, Congress charged a Super Committee of 12 House and Senate members to propose legislation by late November to make $1.5 trillion in spending cuts. Agriculture programs are on the table. Several farm groups have responded by coming up with their own proposals to keep their piece of the pie. President Obama also unveiled a deficit reduction plan that places direct payments in the crosshairs. Hours after the Obama administration’s plan went public, Cook said in a statement, “We are encouraged to see the tide turning in favor of investments in agriculture that are smarter for farmers and the environment and fairer to taxpayers who have been padding the bank accounts of profitable agribusiness operators for years.”

2012: The Failed Farm Bill Bait and Switch

When both the Senate and House Agriculture Committees sat down to craft their versions of what they hoped would be a 2012 farm bill, both committees eliminated direct payments in their proposals. By this time most members recognized how hard it was to justify the automatic payments to profitable mega farms in a contentious budget environment.

Sadly, instead of giving relief to taxpayers, or using some of the savings to makeup ground in programs chronically cut like conservation, in a classic bait and switch lawmakers opted to plow much of the $5 billion per year in savings into new entitlements for the largest and most successful farm businesses. Their plan called for growing unlimited crop insurance subsidies and creating new budget-busting farm revenue and price guarantees.

But the House failed to pass its farm bill and thankfully the egregious expansion of the crop insurance program was scuttled for the time being.

2013: The "Fiscal Cliff" Extension

On New Year’s Day Congress reached a deal on the “fiscal cliff” tax bill. Included in that bill was a last minute extension of the 2008 farm bill that perpetuated the widely discredited direct payments. A responsible measure would have cut direct payments and insurance subsidies and fully funded important conservation programs. Instead of eliminating the wasteful direct payments program, the bill passed by Congress cuts funding for organic agriculture, clean water, and beginning farmer initiatives.

Congress now prepares to pickup the farm bill again this May. They are expected to once again target direct payments while using the savings to create new insurance subsidy schemes. But the time is ripe for change. Policy makers and the public know it. Farmers need a system they can be proud of, one that rewards them for good stewardship of the land and promotes the protection of our soil and water. Right now, the top 10 percent of recipients still receive 74 percent of all subsidy money, while two-thirds of farmers get absolutely nothing. Reforming the system will not only ease the nation’s financial situation, it will protect other farm bill priorities – such as nutrition and conservation programs – from further cuts.